As we mentioned in the February 2021 edition of KSW Insight here, reporting for SME’s is about to become more onerous. The new rules have come in for reports generated for periods that commence after 1 July 2021, so you will need to understand what the rules mean and who they effect. Below we revisit the issues to be considered.
The transition to the General purpose financial reporting requirements is mandatory for accounting periods commencing after 1 July 2021.
General Purpose Financial Statements (GPFS) will be required for all for-profit private sector entities that:
- are required to prepare financial statements in accordance with Australian Accounting Standards by legislation (ie the Corporations Act), or
- where the constitution or other key documents (eg bank loan agreement) require the preparation of financial statements in accordance with Australian Accounting Standards, when such documents were created or amended on or after 1 July 2021.
- it will also mean GPFS are required for specific circumstances where a document like a business sale agreement requires financial statements to be prepared “in accordance with Australian Accounting Standards”.
The changes mean it is likely that a number of types of for-profit entities will need to prepare GPFS including:
- unlisted public companies
- large proprietary companies (including grandfathered entities)
- AFSL licensees
- small proprietary companies that have raised funding via crowd sourcing:
For most entities, our firm recommends early adoption of these requirements as part of the preparation of your financial statements for year ended 30 June 2021 so as to take advantage of various transitory reliefs including not having to restate comparatives when doing the 2022 financial statements – this could especially be a significant workload should there be changes in accounting methods/policies needed. Having done the cost estimates of not adopting the changes in the 2021 financial statements, with a need to restate the accounts for 2021 when 2022 figures are done, compared to adopting the new measures in 2021 and then not having to restate comparatives in 2022, the cost is likely to be higher with the former, where the changes are not adopted in the 2021 financial statements.
We have standard examples of the General purpose – Simplified disclosure standards (SDS) format that demonstrate some of the new measures, which we can provide should you wish to compare to the special purpose financial statement format. Some implications to note with these new disclosures, depending on your business, include:
- all measurement and recognition criteria of the Accounting standards need to be adopted
- the above means that many entities are having to ensure for example Deferred tax and long service leave are appropriately brought to account
- there are increased level of disclosures in areas such as revenue recognition (under AASB 15), leases (under AASB 16), tax, financial risk management and related party transactions.
There are a fair amount of changes involved and the first year of adoption is going to be where more work is needed to help you transition and meet the requirements. The ongoing preparation of the financial statements should become more routine in ensuing years but will still be more onerous than the special purpose framework which used to be available to SME’s under the previous reporting regime.
We have been communicating with clients directly who are affected by these changes, but if you have any queries on your own affairs please don’t hesitate to contact your client manager to discuss.
Kreston Stanley Williamson Team
*Correct as of 29 September 2021
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.